## Facts

- Blue Chip Stamps operated a trading-stamp business and was subject to a 1967 antitrust consent decree requiring a reorganization and a stock offering in a new entity (“New Blue Chip”).
- The decree required that a substantial block of New Blue Chip common stock be offered to retailers who had used Blue Chip’s services but were not shareholders.
- Manor Drug Stores was an eligible offeree under the decree but did not purchase any shares.
- Manor alleged that the offering materials contained materially misleading statements and an overly pessimistic appraisal intended to dissuade offerees from buying, enabling Blue Chip to sell later at a higher price.
- Manor filed a class action for damages under § 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.

## Issues

1. Whether a private damages action under § 10(b) and Rule 10b-5 may be maintained by an offeree who did not purchase the security, allegedly because of deceptive or misleading offering materials.
2. Whether the purchaser–seller limitation (the Birnbaum rule) confines Rule 10b-5 damages standing to actual purchasers or sellers, absent a narrow exception.

## Decision

- The Supreme Court reversed the Ninth Circuit and reinstated dismissal of the complaint.
- The Court held that private damages actions under Rule 10b-5 are confined to actual purchasers or sellers of securities.
- Because Manor did not purchase the offered shares, it lacked standing to sue for damages under Rule 10b-5.
- The Court declined to create an exception for decree-mandated offerees, favoring a clear, administrable standing rule.

## Legal Principles

- Standing to bring a private damages claim under § 10(b) and Rule 10b-5 is limited to actual purchasers or sellers of securities (the Birnbaum purchaser–seller rule).
- The implied nature of the Rule 10b-5 private damages remedy supports judicially imposed limits on eligible plaintiffs absent clear congressional direction.
- A bright-line purchaser–seller requirement reduces speculative claims based on unprovable assertions that a plaintiff would have traded but for alleged misstatements and curbs coercive settlement pressure from litigation costs.
- Prior recognition of standing for holders of contractual rights to buy or sell (e.g., options) does not extend to mere offerees who never consummated a transaction.

## Conclusion

The Court held that Rule 10b-5 private damages suits require an actual purchase or sale, barring claims by nonpurchasing offerees who allege they were misled into not buying.


Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975)